Revenue falls short of expectations for the first time in 18 years, with poor guidance, cloud computing service giant Salesforce plunges 17% after hours | Financial Report Insights

Salesforce, a self-proclaimed "world's number one AI CRM" and cloud-based customer relationship management software solution provider, released its first-quarter report for the fiscal year 2025 ending in late April after the market closed on Wednesday, May 29.

Due to the company's revenue growth falling significantly below market expectations, weak guidance for the next quarter, and a downward revision of the year-over-year growth rate for the main business segment "subscriptions and support" for the fiscal year 2025, the stock plummeted over 17% after hours. If the decline continues to the opening of the next day, it will completely erase the gains made earlier in the year.

The financial report shows that Salesforce's revenue for the first quarter was $9.13 billion, an 11% year-over-year increase, including $8.59 billion in subscription and support revenue, which grew by 12% year-over-year but fell short of the market's expected total revenue of $9.17 billion.

Analysts have noted that this is the first quarter since 2006 in which the company's revenue has fallen below market expectations. RBC Securities described it as a "difficult quarter with disappointing guidance."

Net profit surged from $199 million or $0.20 per share a year ago to $1.53 billion or $1.56 per share. Adjusted earnings per share were $2.44, higher than the market's expected $2.38.

All five major business segments contributed to revenue growth, but the "professional services and other" category saw a 9% decline to $548 million, below the expected $573 million. Service revenue of $2.18 billion and adjusted operating profit of $2.93 billion were slightly below expectations.

For the second quarter, the company expects adjusted earnings per share of $2.34 to $2.36, below the market's expectation of $2.40. Quarterly revenue is forecasted to be $9.2 billion to $9.25 billion, representing a 7% to 8% year-over-year growth, but falling short of the market's expectation of $9.37 billion.

Additionally, Salesforce raised its profit forecast for fiscal year 2025, increasing the adjusted EPS from the previously provided $9.68 to $9.76 per share three months ago to $9.86 to $9.94 per share, significantly higher than Wall Street's expectation of $9.76 per share.

The company maintains its revenue guidance for fiscal year 2025 at $37.7 billion to $38 billion, representing an 8% to 9% year-over-year growth, with the upper limit of the range still below the market's expectation of $38.1 billion Moreover, the company has lowered its full-year subscription and support revenue growth forecast to slightly below 10%, previously expected to be "around 10%", and has revised down the GAAP operating profit margin guidance for fiscal year 2025 to 19.9%, while maintaining the non-GAAP operating profit margin at 32.5%. The company also maintains its guidance for a year-over-year growth of 21% to 24% in operating cash flow for fiscal year 2025.

Subscription and support revenue accounts for the largest share of Salesforce's total revenue, followed by the "professional services and other" category. Wall Street News previously mentioned that although the company returned to profit in the fourth quarter of fiscal year 2024, the outlook for the first quarter of fiscal year 2025 is not optimistic, leading to a 7% drop in the stock price.

Some netizens commented that Salesforce's financial report indicates that the software industry is in a comprehensive crisis, and even Microsoft and Oracle are not immune to the negative impact.

The first quarter report also shows a GAAP operating profit margin of 18.7% and a non-GAAP operating profit margin of 32.1%. Operating cash flow was $6.25 billion, a year-on-year increase of 39%, and free cash flow was $6.08 billion, a year-on-year increase of 43%. The remaining performance obligations currently stand at $26.4 billion, a year-on-year increase of 10%. Stock repurchases amounted to $2.2 billion, and $400 million was returned to shareholders through dividends.

Three months ago, Salesforce Chairman and CEO Marc Benioff stated that over time, the company's internal adoption of artificial intelligence technology has helped boost profit margins. In this statement, he said:

"The company's profit growth trajectory continues to drive strong cash flow generation. Our capital return program has also made significant progress, returning over $14 billion to shareholders since inception, including the company's first-ever quarterly dividend in the first quarter.

We are at the beginning of a huge opportunity where our customers can engage with their customers in new ways through artificial intelligence. As the world's number one AI CRM, Salesforce is in a very favorable position to help businesses deliver on the promise of artificial intelligence over the next decade."

During the reporting period, Salesforce began selling its Einstein Copilot assistant for sales and customer service representatives. The company also stated that all paying customers of Slack (a work efficiency management platform) can use AI features such as conversation summaries and daily reviews.

Before the significant post-market drop, Salesforce's stock price had risen by 3.5% this year, but lagged behind the S&P 500 index, which rose by about 11% during the same period